What is the management representation letter, and must I sign it?

What it is HKSA 580 requires written representations from management in the form of a representation letter addressed to the auditor.

Typical content

• Management accepts responsibility for the financial statements and internal control.
• All records and information were made available to the auditor.
• All transactions are recorded, and related parties and their transactions are disclosed.
• Known or suspected fraud, non-compliance and post year-end events have been disclosed.
• Plans and ability to continue as a going concern.

Dating The letter is dated as near as practicable to, but not after, the date of the auditor's report (HKSA 580 para 14).

Can the auditor rely on it alone? No. Representations are audit evidence but cannot replace other evidence. If management refuses to sign, the auditor must consider whether this affects their reliance on management's integrity and the opinion, and must disclaim an opinion if management does not provide the required representations (para 20).

Practical points

• Read it before signing; the directors are making statements to the auditor.
• Signing something you know is untrue is risky; a materially false or misleading statement to an auditor can be an offence under s.413(3) of the Companies Ordinance.